State density bonus law -- one of many California statutes enacted to implement the state's policy of promoting the construction of affordable housing -- has withstood a significant challenge posed by the County of Napa (the "County") in a new California Court of Appeal opinion, Latinos Unidos del Valle de Napa y Solano v. County of Napa. The Court's opinion is good news, not only for advocates of affordable housing, but also developers of multifamily housing who rely upon the law, which provides valuable development incentives and is a useful and powerful tool in the permitting process.
The California Legislature enacted the density bonus law -- Government Code § 65915 -- in 1979 to address the shortage of affordable housing in California. The law is fairly straightforward. Where a developer agrees to set aside a certain percentage of units in a new housing development for low income households, the law mandates that a city or county grant the developer one or more itemized concessions from otherwise applicable zoning standards and a "density bonus," which allows the developer to increase the density of the development by a certain percentage above the maximum allowable limit under local zoning law. The density bonus given is a sliding scale depending upon the percentage of units set aside for either low, very low or moderate income households. For example, a developer is entitled to a 5% density bonus for setting aside 10% of a development's units for moderate income households, and a 35% density bonus for setting aside 11% of a development's units for very low income households. To ensure compliance with density bonus law, local governments are required to adopt an ordinance implementing the directives of the statute.
In 2010, the County amended its density bonus ordinance to provide that the density bonus available to a developer would be calculated based only upon units set aside in addition to those already set aside pursuant to the County's "inclusionary requirement." That requirement mandated that up to 20% of new dwelling units in a residential development project be made available at prices affordable to moderate-income households. Thus, the County's code was amended to provide that "units that qualify a project for a density bonus pursuant to [density bonus law] must be provided in addition to the affordable units required by [the inclusionary requirement] and do not meet the affordable housing requirements contained in this section."
As a result of the new ordinance, a developer would be required to set aside a greater number of income restricted units to obtain a targeted density bonus. "For example, while under state law, density bonuses, concessions and incentives must be allowed where a developer agrees to restrict 10% of the project's units to lower-income households, under the [C]ounty's ordinance, a developer only qualifies when it has restricted at least 22% of a projects units to lower-income households."
Plaintiffs contended that the County's new ordinance was void because it conflicted with state law in that "the [C]ounty ordinance impermissibly requires the developer to include a higher percentage of affordable units than [S]ection 65915 requires in order to obtain a density bonus." The County, on the other hand, urged that Section 65915 allowed a local government to increase the percentage of affordable housing units necessary to qualify for a density bonus. The County's argument was based upon Section 65915(b), which provides that a "city, county, or city and county shall grant one density bonus . . . when an applicant for a housing development seeks and agrees to construct a housing development" with certain percentages of affordable housing. The terms "seeks" and "agrees", the County argued, "connote action that is discretionary and volitional, rather than mandatory, and support the [C]ounty's requirement that a developer go above and beyond the minimum to receive any density bonus."
The Court of Appeal disagreed. According to the court, Section 65915 imposes a clear and unambiguous mandatory duty on municipalities to award a density bonus when a developer agrees to dedicate a certain percentage of the overall units in a development to affordable housing. The County's ordinance -- which fails to credit income restricted units satisfying the County's inclusionary requirement toward satisfying the state's density bonus requirements -- fails to comply with state law. "To the extent the ordinance requires a developer to dedicate a larger percentage of its units to affordable housing than required by [S]ection 65915, the ordinance is void."